Trusts and divorce

Trusts and divorce

I often get asked what happens to the assets of a trust in the event of a divorce, especially if the spouses are both trustees.

The first thing to fully understand is that the assets are owned by the trust (or its company) and not one of the spouses getting divorced.

The other spouse can be thought of as a potential creditor trying to break through the firewall protecting the trust assets. His or her attorneys will, (because this is what they learned at University and is about all they know about trusts), try to prove that the trust is a shame, that their opponent treated it as his/or her alter ego (they love their Latin). They will rely on the Badenhorst vs Badenhorst case but will fail, because they always fail at this one (I'm assuming your Trust Deed was properly crafted and not just drafted). So, the assets are safe from the other spouse.

But what if the other spouse is also a Trustee?

All Trustees are answerable to the Master of the High Court. They have a fiduciary obligation towards the beneficiaries. This means that they have a legal obligation to act in the beneficiaries' interests and not their own. Nowadays, every discretionary trust has an independent professional trustee. I believe that he plays an important role in a divorce situation. He or she must remind the trustees of their fiduciary obligations and insist that they keep their personal squabbles away from the trust. He will use his vote to ensure that there is no untoward distribution of trust assets or income to either of the disputing parties.

The only real problem that arises is that once you're divorced, you rarely want anything to do with your ex-spouse, so it is better if one can be persuaded to resign as a trustee. An independent professional trustee, who happens to be an accredited mediator may be able to facilitate this.

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South African Institute of Chartered Accountants. Designation CA(SA)  Internationally Accredited Financial MediatorsIndependent Regulatory Board for Auditors. Designation RA<Engineering Council of South Africa. Designation Pr(Eng) Member of MENSA, the High IQ Society




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